Conservative government tax breaks benefit some, but not all (with video)

Prime Minister Stephen Harper’s multi-billion-dollar package of tax breaks for families offers income-splitting for couples with kids, expands the monthly Universal Child Care Benefit – and sets out the narrative the government hopes will frame the 2015 election.

The series of tax-relief measures will only benefit parents and families with children under age 18, leaving many Canadians who have no children (and parents with adult children) wondering where the breaks are for them.

The tax-cut measures will see large cheques landing in many voters’ mailboxes next July, just months before an expected October 2015 federal election.

The tax breaks are expected to cost the federal treasury an estimated $4.6 billion in the 2015-16 fiscal year and $26.8 billion over the next six years – although Harper argues this won’t derail his government’s plans to balance the books in 2015, nor will the pricey commitments sink Canada back into deficit in the coming years.

Among the changes, Harper tweaked the Conservative party’s 2011 election promise, and will introduce income-splitting for couples with children under 18 (sharing up to $50,000 of income), but will now cap the non-refundable benefit at $2,000 per family.

The income-splitting “family tax cut” will be available for the 2014 taxation year and will benefit about 1.7 million families, says the government, costing the treasury roughly $2 billion annually.

The government is also increasing the Universal Child Care Benefit (UCCB) to $160 per month per child for kids under age six, up from the current $100 per month. The Tories are introducing a new UCCB benefit of $60 per month per child for children aged six to 17, effective Jan. 1, 2015.

In announcing the bundle of tax breaks, Harper is looking to silence critics who said his original income-splitting promise would benefit few Canadians. Instead, he’s sprinkling relief to a wider swath of voters.

“We’re assuring significant benefits that go across the board,” Harper said at a staged event with supporters in Vaughan, Ont. “We put all this together in one series of announcements to make sure we have measures that treat all Canadian families fairly.”

Harper also used the event to contrast himself and the Conservative party with Tom Mulcair’s NDP – which recently promised a $15-a-day national child care program – and Justin Trudeau’s Liberals, who have been criticized for failing to release concrete tax-cut proposals for families.

“This is a difference between our (Conservative party) philosophy and the others: we have always been clear that money and support to help families raise children should not go into more bureaucracy, it should go to the real experts on child care, that’s mom and dad, and that is what we are doing,” he said.

The prime minister shed his glasses and tie and mingled with kids and parents on stage during the announcement, part of an effort to show his government and the Conservative party as family-friendly.

“They’re throwing a lot of money at families. It neatly spears some of the opposition that the initial Conservative party proposal encountered … by having something for all kinds of families,” said Finn Poschmann, vice-president of the C.D. Howe Institute, a fiscally conservative think-tank.

“If you don’t have kids under 18, there’s nothing in it for you — so far.”

Earlier this year, shortly before he resigned as finance minister, the late Jim Flaherty said the government’s initial income-splitting proposal for families would be of no benefit to many Canadians.

Many economists and think-tanks said the Conservatives’ initial income-splitting promise would have seen tax benefits largely concentrated among high-income, one-earner couples, with many families receiving few or no tax breaks.

On Thursday, just minutes before Harper revealed the details of his income-splitting announcement, Mulcair was blasting it as bad policy.

“This is a plan, as Jim Flaherty said, that will increase inequality in our society,” Mulcair told reporters.

“It will only help a very small minority of people at a time when inequality is increasing in our society after years and years of Liberal and Conservative rule.”

Mulcair would not say if an NDP government would reverse the income-splitting scheme, saying his party will fight it in Parliament before it is approved.

NDP finance critic Nathan Cullen later said the Tories’ income-splitting plan is too costly and won’t even affect 86 per cent of Canadians, such as parents without children under 18, single-parent families, and couples with similar incomes.

“It’s all political and not economics,” he said.

Trudeau said his party will also oppose the income-splitting plan because it doesn’t provide help to those who need it most.

He had promised to reverse the government’s original income-splitting proposal, saying it wouldn’t help Canadian taxpayers who need it most.

Asked Thursday if a Liberal government would repeal the new income-splitting plan, Trudeau replied: “Income-splitting is an idea that will give a $2,000 tax break to families like mine or to Mr. Harper’s. That’s not good enough.”

More from the announcement:

– The enhanced Universal Child Care Benefit will replace the existing Child Tax Credit (a non-refundable tax credit that provides relief up to $338 per child under 18) for the 2015 and subsequent tax years. The government says all families will be better off by replacing the Child Tax Credit with the enhanced UCCB. Over a full year, parents will receive up to $1,920 for each child under age six and up to $720 for each child aged six to 17.

– Expanding the Universal Child Care Benefit is expected to help about four million families and cost the government $4.4 billion annually going forward (although $1.8 billion will be saved each year by eliminating the Child Tax Credit).

– The enhanced UCCB payments will take effect in January 2015 but will only start arriving in mailboxes and bank accounts in July 2015 (up to six months of benefits will be included in July payment). Benefits received under the enhanced UCCB will be taxable for the lower-income spouse.

– There will be a $1,000 increase in the maximum dollar amounts claimed under the Child Care Expense Deduction, effective for the 2015 taxation year. The changes will see the maximum expense amount increase to $8,000 from $7,000 per child under age seven, to $5,000 from $4,000 for each child aged seven through 16, and to $11,000 from $10,000 for children who are eligible for the Disability Tax Credit.

– All told, the government expects the new tax breaks will see families with children receive, on average, about $1,140 in tax relief and benefits each year, helping about four million families.

How does income-splitting work?

A couple would gain from income-splitting by being able to transfer taxable income from one spouse in a higher tax bracket to the other spouse in a lower tax bracket.

For example, Canadians pay 15-per-cent federal income tax on the first $43,953 of taxable income, but the tax rate increases to 22 per cent on the taxable income over $43,953 and up to $87,907.

A sole-earner family (with one parent working and one staying at home) earning $80,000 a year would see their income over $43,953 taxed at the higher rate of 22 per cent. But if that family could split the income to $40,000 each, they would both end up in the lower tax bracket and only pay federal income tax of 15 per cent, saving the family money.

However, many Canadians would receive little or no gain from income-splitting for families, including couples in the same tax bracket, single adults living alone, single parents (who have no spouse to split with), childless couples and couples with only grown children.

Comments

We encourage all readers to share their views on our articles and blog posts. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. If you encounter a comment that is abusive, click the "X" in the upper right corner of the comment box to report spam or abuse. We are using Facebook commenting. Visit our FAQ page for more information.

Almost Done!

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Market to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.